Crucial Reads for Traders – Top Picks for Your Library
- Fundamentals of Options Trading by Joe Duarte
An accessible introduction to the world of options trading. Ideal for beginners, this book breaks down the basics in an easy-to-understand manner.
_______ - Advanced Strategies in Option Trading by Sheldon Natenberg
Regarded as the definitive guide in options trading, Natenberg’s work delves into complex topics such as pricing models, volatility considerations, and various trading strategies. It’s a detailed resource, perfect for reference rather than a straight read-through.
_______ - Strategic Options Trading by Lawrence G. McMillan
Targeting those with a basic understanding of options, McMillan’s book is a thorough exploration of various trading strategies and their applications. It delves into the nuances of strategy implementation in different market scenarios.
_______ - Exploring Volatility Trading by Euan Sinclair
Sinclair’s approach demystifies the process of utilizing volatility in trading. His clear and concise explanations provide a foundational understanding of options pricing and risk management, making it a valuable read for traders focusing on the practical aspects of trading.
_______ - Exotic Options Trading: Strategies and Risk Management by Nassim Nicholas Taleb
An advanced read, best suited for those with a strong grasp of statistical concepts. Taleb’s expertise shines in his detailed exploration of complex trading strategies and risk management techniques. His unique writing style, rich with historical references, adds depth to the discussion.
_______ - Trading Psychology: Cultivating a Winning Mindset by Mark Douglas
Douglas takes a different route, focusing on the psychological aspects of trading. Emphasizing the importance of mindset and discipline, this book is a must-read for understanding the psychological challenges traders face and how to overcome them to achieve success.
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Starting with Options: [A Guide to Spreads and Greeks]
- Option Volatility and Pricing by Sheldon Natenberg
A highly regarded resource in option trading, often likened to a definitive guide. Its content is comprehensive, delving into aspects such as forward pricing, dividends, spreads, and volatility skew. Although the book is thorough, with Chapter 24 being particularly noteworthy, it can be somewhat technical in nature.
_______ - Option Trader’s Hedge Fund: A Business Framework for Trading Equity and Index Options by Mark Sebastian
This was my first options book. Practical trades, discusses some vol modeling, hedging/defending, stories from an early-2000s-ex-market-maker. While I’m really opposed to any book or content that pushes trading in one way, this book approaches options trading from an “insurance” mindset, calling it the “One Man Insurance Company.” I vaguely remember most trades being net short premium, but there were a few relative vol trades. He “coaches” options traders, so he has quite a few examples and describes common pitfalls.
_______ - Options Volatility Trading by Adam Warner
Good primer on trading VIX options and conceptualizing volatility trading. I especially remember his analogy to weather, VIX futures, and why modeling is important for VX. Adam Warner also has a good book on Volatility ETFs. If you’ve ever wondered why relationships between SPX and VIX diverged, or why VIX went up but your VIX calls didn’t, read this book.
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Familiar with Options: [Volatility Trading]
- Option Gamma Trading E-Book Series by Simon Gleadall
This book offers a comprehensive understanding of gamma and its impact on aspects like exposure to volatility, scalping strategies, profitability, and time considerations in trading. It’s an accessible read for those seeking to quickly grasp these concepts.
_______ - Trading Options as a Professional by James Bittman
Authored by Bittman, a former market maker now involved in educational initiatives at Cboe, this book reflects practices from about 15 years ago but remains relevant. It covers essential topics such as synthetic pricing, reverse conversions, dividends, box spreads, option strategies, and effective bid/offer managemen
_______ - Trading Volatility by Colin Bennett
Considered one of the top resources for institutional option trading, this book delves deeply into trading skew, understanding correlation, and mastering term structure strategies.
_______ - Volatility Trading by Euan Sinclair
While it’s advisable to skip over the sections on volatility forecasting, the book offers valuable insights into psychological biases and effective money management strategies, including the Kelly criterion.
_______ - Exploiting Earnings Volatility by Brian Johnson
The book’s title may seem a bit whimsical, but it comes with useful Excel tools that provide practical knowledge in trading around earnings. It offers an in-depth look at the volatility surface and its variations around earnings announcements, as well as expected volatility movements as events approach. Although it doesn’t cover all the intricacies of event pricing, it’s unique in its educational approach to this topic.
_______ - Dynamic Hedging by Nassim Taleb
This is a pivotal book in the field, still widely referenced for its detailed analysis of volatility surfaces, shadow Greeks, alpha strategies, and arbitrage opportunities. Pay particular attention to the chapters discussing these topics for a deeper understanding.
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Expert Option Trader: [Volatility Surface, Modelling]:
Given the common themes and complex subject matter of these books, they all delve into the intricate details of modeling arbitrage-free volatility surfaces, understanding local volatility, Stochastic Volatility Inspired (SVI) models, and the dynamics of skew, correlation, and term structure in financial markets. These books are particularly advanced, focusing on sophisticated financial modeling techniques that are more relevant for institutional or professional trading environments, rather than for retail investors. This specialized focus makes them valuable resources for those seeking in-depth knowledge and practical applications in these specific areas of finance and trading.
- Volatility Smile by Emanuel Derman
This book is an excellent resource for those familiar with derivatives and looking to think independently about the subject. It presents a unified treatment of the Black-Scholes-Merton model and its advanced counterparts, focusing on the principles of financial valuation and the differentiation between theories and models. The book’s approach is practical, enriched with end-of-chapter exercises, and carefully distinguishes between theoretical concepts and their practical applications.
_______ - Volatility Surface by Jim Gatheral
This book on the volatility surface is celebrated for its accessibility and practicality, providing clarity in an area often seen as complex and challenging to understand. The book strikes a balance between specific examples and general models, offering a clear pathway through the vast literature on stochastic volatility. It’s particularly noted for being user-friendly and practical, making it a valuable resource for both practitioners and those new to the field.
_______ - Financial Mathematics of Market Liquidity by Olivier Gueant
This book is noted for being among the first to present the most commonly used mathematical models for solving optimal execution problems and market making in finance. It offers a general modeling framework inspired by the Almgren-Chriss approach and demonstrates its application across various areas. This makes it a pioneering work in understanding the mathematical underpinnings of market liquidity.
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